Morgan's Net Rose by 11.6% In 2d Quarter

J.P. Morgan & Co. on Thursday reported that it earned $231 million in the second quarter, up 11.6% from a year earlier.

The strong showing, on top of $273 million in first-quarter profits, keeps the premier U.S. banking company on track for another $1 billion year, far outpacing its New York rivals.

Morgan's earnings of $1.17 a share were in line with Wall Street's expectations.

Some One-Time Gains

But Morgan's stock fell 75 cents a share Thursday, to $52.125, partly because the returns were bolstered by some one-time gains and tax benefits. Core earnings were closer to $1.05 to $1.10 a share, analysts said. Morgan earned $1.06 a share a year ago.

The nation's fourth-largest banking company recorded $354 million in net interest revenue, up 25% from $283 million a year ago. The profit margin on its loans widened to 1.75%, from 1.48% a year ago and 1.57% in the first quarter.

In general, net interest margins have remained relatively wide because the Federal Reserve has kept interest rates low, said Chistoph Kotowski, an analyst with Oppenheimer & Co.

Morgan's noninterest income increased 5.5% from a year ago, to $557 million, $267 million of which was from trading securities, sovereign debt, and foreign exchange. Corporate finance fees were down modestly, while technology-related fees rose 22% to $95 million.

Performance Unexpected

Few analysts expected Morgan to repeat the phenomenal $461 million in trading gains it earned in the first quarter.

"Trading revenue was strong, but not as strong as the first quarter," said Mr. Kotowski.

Operating expenses rose 14% to $585 million over the yearago quarter, slightly higher than some analysts were expecting. Part of that relates to certain consolidation costs.

"There should be more room to control costs," said Judah Kraushaar, banking analyst at Merrill Lynch. "The big issue is: Can they continue to ratchet down their cost structure."

Morgan continued to avoid the credit problems plaguing many other large banks. Non-performing loans declined to $629 million, from $952 million in the first quarter, predominantly from charging off sovereign loans. It set aside a $10 million provision for future loan losses, as usual. Its loan-loss reserves now total $1.49 billion, or 236% of nonperforming loans.

"They have an exceptional reserve posture," said Mr. Kraushaar.

In the second quarter the bank changed the method it uses to account for the allocation of reserves against sovereign debt. This had the effect of better reflecting the market value of the sovereign debt on its books.

George Salem, banking analyst at Prudential Securities, recently called the stock recommendation of Morgan "our single best idea." Prudential expects J.P. Morgan to earn $5.25 per-share in 1991.

Table : J.P. Morgan & Co.

New York

Dollar amounts in millions (except per share)Second Quarter 2Q '91 2Q '90Net income $231 $207Per share 1.17 1.06

Net interest income (tax equiv.) 397 332Spread 1.75% 1.48%ROA 0.89% 0.83%ROE 18.04% 18.21%Noninterest income 557 528Noninterest expense (585) (511)Loss provision 10 10Net chargeoffs 349 269Balance Sheet 6/30/91 6/30/90Assets $96,858 $93,103Deposits 38,752 41,786Loans 28,817 28,380Shareholder equity 5,576 4,961Loss reserve 1,487 2,090Reserve/loans ratio 5.2% 7.4%%Nonperf. loans 629 876Nonperf. loans/loans 2.2% 3.1%Tier 1 capital ratio 6.6% 6.4%

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